Sparebanken Hedmark 1st Half Year 2013 Presentation of financial results CEO Richard Heiberg 14 August 2013
Apendix I. Highlights first half year Page 4 II. Income statement Page 5 III. Balance Sheet and Capital Page 8 IV. Credit Page 25 V Liquidity and financing Page 29 VI Rating Page 32 2
About Sparebanken Hedmark Sparebanken Hedmark is the leading provider of financial products to people, companies and the public sector in Hedmark Norway's largest self-owned savings bank: NOK 6.3 billion in equity NOK 46 billion in total assets NOK 60 billion in commercial volume (incl. loans to SpareBank 1 Boligkreditt/SpareBank 1 Næringskreditt ) 700 employees, 170,000 customers 25 branches in Hedmark, 2 in Oppland and 1 in Akershus Regional bank with a local presence Hedmark: Branches in 20 out of 22 municipalities Oppland: Branches in Gjøvik and Lillehammer. Akershus: Branch in Årnes. Subsidiaries Estate agency (EiendomsMegler 1 Hedmark Eiendom AS) Leasing and asset financing (SpareBank 1 Finans Østlandet AS) Accounting and consultancy chain (Consis AS) Owns 40.5% of Bank 1 Oslo Akershus AS and 12% of the SpareBank 1 Alliance Rated A2 by Moody's and no. 1 among Norwegian savings banks by Nordea Markets and SB 1 Markets 3
Highlights - 1st Half Year 2013 Agenda Increased stake in Bank 1 Oslo Akershus AS from 12% to 40.5% Decision on direct ownership in SpareBank 1 Markets AS Moody's confirmed A2 and stable outlook Submitted IRB-A application to the Financial Supervisory Authority of Norway High level of activity - lending growth 10%, deposits growth 11% (12 months) Result progress - expanded lending margins and growth in 'other operating income' Low losses Strengthened core capital adequacy - core capital adequacy ratio of 14.7% (14.3%) 4
Income statement first half-year 2013 (Group) Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Net interest income 252 227 242 242 230 Net commission income 89 77 74 63 63 Other income 48 46 44 51 45 Total operating expenses 227 231 223 205 213 Result bankoperation before losses 162 119 137 151 125 Losses on loans and guarantees 22 3 23-2 23 Result bankoperation after losses 140 116 114 153 102 Dividends 18 7 Net profit form ownership interest 53 54-5 46 10 Net income fron financial assets/liabilities 26-88 -21-47 38 Profit/loss before tax 237 82 88 152 157 Tax charge 51 9 29 30 40 Profit/loss after tax 186 73 59 122 117 5
Specification of the consolidated profit (Group) Change in profit before tax Q2-2012 vs Q2-2013 450 400 350 300 8 57 64-71 -22-4 250 200 150 287 319 100 50 0 Profit before tax Q2-2012 Net interest income Net commission and other income Result from ownership interest Net income from financial assets/liablitities Operating expenses Losses Profit before tax Q2-2013 6
Specification of results (Group) 1. Half year 1. Half year (Nok million) 2013 2012 Parent Bank's profit before tax 306 307 Dividends received from subsidiaries and joint ventures -121-101 Profit /loss attributable to: SpareBank 1 Gruppen AS 47 38 Bank 1 Oslo Akershus AS 53 12 SpareBank 1 Boligkreditt AS 5 11 EiendomsMegler 1 Hedmark Eiendom AS 3 2 SpareBank 1 Finans Østlandet AS 39 16 Consis AS 3 0 Other companies and eliminations -16 2 Consolidated profit before tax 319 287 Tax charge 60 65 Consolidated profit after tax 259 222 7
Interest margin Parent bank (incl. Boligkreditt) 2,50 % 2,40 % 2.43 % 2,30 % 2.32 % 2.32 % 2.25 % 2.28 % 2.26 % 2,20 % 2.19 % 2.18 % 2.22 % 2,10 % 2.08 % 2.08 % 2,00 % 2.01 % Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 8
Interest margin Parent bank (incl. Boligkreditt) 2,80 % 2,70 % 2.71 % 2.68 % 2,60 % 2,50 % 2.52 % 2.61 % 2.42 % 2.55 % 2.59 % 2.42 % 2.50 % 2,40 % 2,.6 % 2,30 % 2,20 % 2,10 % 2,00 % 2.22 % 2.36 % 2.16 % 2.17 % 2.15 % 2.27 % 2.18 % 2.15 % 2.24 % 2.08 % 2.03 % 2.30 % 2.12 % PM: Retail banking BM: Corporate banking 1,90 % Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 PM Q1 2012 BM Q2 2012 Q3 2012 Q4 2012 1.94 % Q1 2013 Q2 2013 9
Operating expenses (Group) 1. Half year 2013 1. Half year 2012 Payroll 178 174 Pension costs 24 24 Social security expenses 38 34 Total personnel expenses 240 232 Total operating expenses and other expenses 142 133 Total personnel- and operating expenses 382 365 Depreciation 19 18 Other operating expenses 57 53 Total personnel- and operating expenses 458 436 10
Losses on loans and guarantees (Group) Quarterly losses isolated -30 Yearly losses -160-140 -146-120 -25-26 -100-20 -15-22 -23-23 -22-80 -60-40 -20 0-50 -50-42 -25 2009 2010 2011 2012 Q2 2013-10 -5 0-12 2 2-3 Defaulted and doubtful commitments 1.000 1,76 % 1,85 % 1,75 % 800 600 1,39 % 390 424 1,20 % 400 518 459 482 200 247 441 420 270 171-2009 2010 2011 2012 Q2 2013 Net defaulted and doubtful commitments 2,00 % 1,80 % 1,60 % 1,40 % 1,20 % 1,00 % 0,80 % Individual write-downs on loans and guarantees 5 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Total defaulted and doubtful commitments 11
Main figures Sparebanken Hedmark (Group) 1. half year 2013 1. half year 2012 2012 Profitability Return on equity capital after tax 8,5 % 7,9 % 7,0 % Total operating costs in relation to total income 57,1 % 58,6 % 60,3 % From the balance sheet Deposits rom customers in relation to gross loans to customers 83,4 % 80,4 % 79,4 % Lending growth last 12 months incl. BK and NK 10,9 % 6,4 % 7,7 % Deposits growth during the last 12 months 10,5 % 8,5 % 8,6 % Losses and commitments in default Losses on loans as a percentage of gross loans 0,1 % 0,1 % 0,1 % Commitments in default as a percentage of total commitments incl. BK and NK 0,9 % 0,9 % 0,90 % Financial strength Capital adequacy ratio 14,7 % 14,3 % 16,9 % Core capital ratio 14,7 % 14,3 % 16,9 % 12
Quarterly financial statements
Statement second quarter 2013 (Group) Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Net interest income 252 227 242 242 230 Net commission income 89 77 74 63 63 Other income 48 46 44 51 45 Total operating expenses 227 231 223 205 213 Result bankoperation before losses 162 119 137 151 125 Losses on loans and guarantees 22 3 23-2 23 Result bankoperation after losses 140 116 114 153 102 Dividends 18 7 Net profit form ownership interest 53 54-5 46 10 Net income fron financial assets/liabilities 26-88 -21-47 38 Profit/loss before tax 237 82 88 152 157 Tax charge 51 9 29 30 40 Profit/loss after tax 186 73 59 122 117 14
Specification of the consolidated profit (Group) (Nok million) Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Parent Bank's profit before tax 266 40 82 90 191 Dividends received from subsidiaries and joint ventures -94-27 0 0-67 Profit /loss attributable to: SpareBank 1 Gruppen AS 10 37-5 27 9 Bank 1 Oslo Akershus AS 45 8-4 7 5 SpareBank 1 Boligkreditt AS 0 5 4 5 4 EiendomsMegler 1 Hedmark Eiendom AS 3 0 1 2 3 SpareBank 1 Finans Østlandet AS 22 17 6 15 9 Consis AS 1 2 3 0 0 Other companies and eliminations -16 0 2 7 4 Consolidated profit before tax 237 82 88 152 157 Tax charge 51 9 29 30 40 Consolidated profit after tax 186 73 59 122 117 15
Financial results by quarter (Group) Profit/loss before tax excl. profit from other financial assets and liabilitites Profit/loss before tax 250 200 150 100 119 199 109 170 211 250 200 150 100 157 152 88 82 237 50 50 0 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 0 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Net result from other financial assets and liabilities Result after tax 60 40 20 0-20 -40 38 26 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 -21 200 180 160 140 120 100 80 60 117 122 59 73 186-60 -80-100 -47-88 40 20 0 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 16
Net interest income (Group) Interest income excl. Commission from BK and NK Interest income incl. commission from BK and NK 255 2,35 % 350 250 2,31 % 2,30 % 2,29 % 2,30 % 300 245 240 235 230 2,25 % 2,13 % 2,24 % 2,21 % 2,15 % 2,25 % 2,20 % 2,15 % 250 200 150 11 10 10 9 17 27 27 37 41 49 225 220 2,07 % 2,10 % 2,05 % 100 237 244 244 246 241 230 242 242 227 252 215 2,00 % 50 210 244 244 246 241 230 242 242 227 252 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 1,95 % 0 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Net interest income (quarterly) Net interest income as % of average assets (cumulative) Net interest income Commission from SpareBank 1 Boligkreditt AS (BK) and SpareBank 1 Næringskreditt AS (NK) 17
Net commission and other income (Group) 200 180 160 49 140 120 100 41 30 80 60 40 37 27 15 13 16 31 23 18 19 16 17 12 8 9 15 16 10 20 0 27 Commission from BK and NK 16 15 Real estate brokerage 28 Income from accounting 16 16 22 14 15 9 Payment transmission Insurance services Other commission Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 18
Net income from financial assets and liabilities (Group) Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Dividends 18 7 Net profit from ownership interest 53 54-5 46 10 Profit/loss and change in value of bond and certificates 19-37 -21-114 7 Profit/loss and change in value of shares -7 1 Profit/loss and change in value of financial derivatives 14-51 66 31 Net income from financial assets and liabilities 97-34 -26-1 55 19
Operating expenses (Group) Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Payroll 86 92 87 86 83 Pension costs 12 12 3 11 12 Social security expenses 18 20 20 18 16 Total personnel expenses 116 125 110 115 111 Total operating expenses and other expenses 75 67 77 61 70 Total personnel- and operating expenses 191 191 187 176 181 Depreciation 10 9 9 9 9 Other operating expenses 27 30 27 20 23 Total personnel- and operating expenses 227 231 223 205 213 20
Balance sheet and capital
Development in balance sheet Gross loans incl. Loans transferred to mortgage companies (NOK billion) 60,0 12,0 % 50,0 41.8 42.3 43.0 44.0 44.6 45.0 45.8 46.7 48.1 49.0 50.5 10,0 % 40,0 8,0 % 30,0 6,0 % 20,0 4,0 % 10,0 2,0 % - 0,0 % Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Development in assets and business volume (NOK billion) 70,0 60.0 56.7 60,0 53.0 49.6 44.3 46.1 50,0 35.8 38.4 40,0 30.4 30,0 20,0 10,0 0,0 2005 2006 2007 2008 2009 2010 2011 2012 Q2-2013 Gross loans incl. BK Lending growth during the last 12 months Assets Loans transferred to BK and NK Business volume Deposits (NOK billion) Development equity (NOK billion) 35,0 30,0 25,0 20,0 15,0 10,0 24.1 24.1 25.6 25.3 25.9 26.0 27.8 27.6 28.1 29.2 30.7 14 % 12 % 10 % 8 % 6 % 4 % 7.000 6.000 5.000 4.000 3.000 3.647 4.156 4.398 4.759 5.325 5.534 6.044 6.305 5,0 2 % 2.000 0,0 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Volume of deposits Deposits growth during the last 12 months 0 % 1.000-2006 2007 2008 2009 2010 2011 2012 Q2 2013 22
Balance sheet 30.06.2013 30.06.2012 31.12.2012 ASSETS Cash and deposits with central banks 604 608 236 Loans to and receivables from credit institutions 480 349 294 Loans to and receivables from customers 36.517 34.226 35.200 Financial papers 5.400 5.991 5.958 Investments in subsidiaries, associates and joint ventures 2.370 1.415 1.558 Other assets 919 899 867 Total assets 46.290 43.488 44.113 LIABILITIES Deposits from and liabilities to credit institutions 631 1.010 833 Deposits from and liabilities to customers 30.677 27.760 28.137 Liabilities arising from issuance of securities and financial derivatives 7.464 7.980 8.231 Other debt an liabilities recognised in the balance sheet 715 1.053 868 498 Total liabilities 39.985 37.803 38.069 EQUITY CAPITAL Earned equity capital 6.305 5.685 6.044 Total equity capital 6.305 5.685 6.044 Total liabilities and equity capital 46.290 43.488 44.113 23
Development in Tier 1 ratio (Group) Tier 1 ratio for Parent bank (30.06): 20.3 % 18,0 % 16,0 % 16.9 % 14,0 % 12,0 % 10,0 % 12.7 % 13.2 % 11.5 % 14.1 % 15.1 % 15.2 % 14.7 % 8,0 % 6,0 % 4,0 % As at 1. July 2013 the Government has implemented new capital adequacy requirements: Core Tier 1: Minimum 9 % Tier 1: Minimum 10,5 % Capital adequacy ratio: Minimum 12,5 % 2,0 % 0,0 % 2006 2007 2008 2009 2010 2011 2012 Q2 2013 24
Credit
Composition of loans and receivables from customers (Group) Gross loans by sector and industry inlc. Mortage comapaniese Composition of loans incl. Mortage companies Wholesale and retail trade; 1.046 Commercial services; 1.760 Primary Other; 92 industries; 3.253 Corporate banking; 43.0 % Retail banking; 57.0 % Private customers; 23.086 Real estate; 6.210 Building and construction; 1.326 Transferred to Næringskreditt; 293 Composition of loans excl. Mortage companies Transferred to Boligkreditt; 13.696 Corporate banking; 31.7 % Retail banking; 68.3 % 26
Risk in the loan portfolio (excl. BK) Loans by size of commitment as a percentage of EAD 80 % Loans by size of commitment as a percentage of EAD 90 % 70 % 71 % 71 % 80 % 78 % 75 % 60 % 70 % 50 % 60 % 40 % 50 % 40 % 30 % 20 % 10 % 0 % 21 % 19 % 10 % 8 % Lowest/low risk Medium risk High/highest risk Share of EAD loans as at 30.06.12 30 % 20 % 10 % 0 % 10 % 11 % < 10 MNOK 10-50 MNOK 6 % 6 % 5 % 3 % 3 % 3 % 50-100 MNOK 100-200 MNOK > 200 MNOK Share of EAD loans as at 30.06.132 Share of EAD loans 30.06.2012 Share of EAD loans 30.06.2013 27 Loans according to risk as a percentage of EAD
Risk in the loan portfolio(incl. BK) Loans by size of commitment as a percentage of EAD 90 % 80 % 77 % 78 % Loans by size of commitment as a percentage of EAD 90 % 84 % 82 % 80 % 70 % 70 % 60 % 50 % 40 % 30 % 60 % 50 % 40 % 30 % 20 % 15 % 16 % 20 % 10 % 0 % 5 % 6 % Lowest/low risk Medium risk High/Highest risk Share of EAD loans as at 30.06.12 10 % 0 % 8 % 7 % < 10 MNOK 10-15 MNOK 50-100 MNOK 4 % 4 % 3 % 2 % 3 % 2 % 100-200 MNOK > 200 MNOK Share of EAD loans as at 30.12.13 Share of EAD loans 30.06.2012 Share of EAD loans 30.06.2013 28 Loans according to risk as a percentage of EAD
Liquidity and financing
Liquidity reserves The figure shows the distribution of the bank's liquidity reserve as at 30.6.13 The grey bar indicates a haircut of 10 %. 7.000 6.000 87 432 5.000 1.000 4.000 131 239 3.000 5.405 2.000 3.430 1.000-518 Cash Drawing rights in the Central Bank CPs Other liquid assets Unutilized credit facilities Funds and listed shares Liquidity reserve 30
Maturities Annual maturities; total to maturity MNOK 8 044. Funding maturities the next 12 months MNOK 1 749. 800 2.000 600 1.500 1.000 400 500 200-2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Bond issues 200 1.249 1.205 1.345 1.000 1.030 300 300 - - - - - - - - Loans from banks - - - - 65 - - - - - - - - 550 - - CP - 300 - - - - - - - - - - - - - - F-loan, Central Bank - - - - - - - - - - - - - - - - Subordinated - - - - - 500 - - - - - - - - - - - jul. 13 aug. 13 sep. 13 okt. 13 nov. 13 des. 13 jan. 14 feb. 14 mar. apr. 14 mai. 14 jun. 14 14 CP Loans from banks Bond issues F-loan, Central Bank 31
Rating
Rating On 2 July, Moody's confirmed Sparebanken Hedmark's A2 rating and said it had a stable outlook. Moody's put it under review for possible downgrading in March due to our increased stake in Bank 1 Oslo Akershus AS The bank's individual C- rating (standalone financial strength rating) was also confirmed Rating drivers: Robust local retail operations Funding supported by high proportion of deposit funding The bank's profitability is supported by stable, traditional banking Membership of the SpareBank 1 Alliance (cross-sales, economies of scale, risk management models, etc.) which also entails a certain probability of financial support from other member banks The quality of loans is, based on some key figures, somewhat weaker than in comparable banks, but the trend is positive Increased stake in Bank 1 Oslo Akershus increases the risk profile slightly Unofficial ratings - rating of Norwegian savings banks: Nordea Credit Research: # 1 DNB Markets: # 2 SpareBank 1 Markets: # 1 33